Charles Evans Whittaker

“ If 'lawful,' it would constitute nothing more than a loan, or possibly a gift, to the 'embezzler,' neither of which would produce a taxable gain to him.
There is still another obvious and important distinction between embezzlement and the varieties of illegal activity listed by the prevailing opinion-one which clearly calls for a different tax treatment. Black marketeering, gambling, bribery, graft and like activities generally give rise to no legally enforceable right of restitution-to no debtorcreditor relationship which the law will recognize. ”

“ The fact that an embezzler's victim may have less chance of success than other creditors in seeking repayment from his debtor is not a valid reason for us further to diminish his prospects by adopting a rule that would allow the Commissioner of Internal Revenue to assert and enforce a prior federal tax lien against that which 'rightfully and completely belongs' to the victim. Commissioner of Internal Revenue v. Wilcox, supra, 327 U.S. at page 410, 66 S.Ct. ”

“ The Chief Justice's opinion, although it correctly recites Wilcox's holding that 'embezzled money does not constitute taxable income to the embezzler in the year of the embezzlement' (emphasis added) , fails to explain or to answer the true basis of that holding. Wilcox did not hold that embezzled funds may never constitute taxable income to the embezzler. To the contrary, it expressly recognized that an embezzler may realize a taxable gain to the full extent of the amount taken, if an when it ever becomes his. ”

“ The Chief Justice's opinion quite understandably expresses much concern for 'honest taxpayers,' but it attempts neither to deny nor justify the manifest injury that its holding will inflict on those honest taxpayers, victimized by embezzlers, who will find their claims for recovery subordinated to federal tax liens. ”

“ More importantly, it will enhance the creditor's position by assuring that prior federal tax liens will not attach to the subject of the debt when he seeks to recover it.
Notwithstanding all of this, The Chief Justice's opinion concludes that there is no difference between embezzled funds and 'gains' from other 'illegal sources,' and it points to the fact that Congress, in its 1916 revision of the 1913 Income Tax Act, omitted the word 'lawful' in describing businesses whose income was to be taxed. ”

“ Thus, in its complete form, the sentence in North American Oil from which the above-quoted fragment was extracted reads: 'If a taxpayer receives earnings under a claim of right and without restriction as to its (sic) disposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent.' Id., 286 U.S. at page 424, 52 S.Ct. ”